Chinese farmers look for hope in rising prices

By Jason Subler

5 Min Read

SHOUGUANG, China (Reuters) - For most Chinese people, at least those living in cities, the recent surge in food prices has been decidedly unwelcome. But here at one of the country's biggest wholesale vegetable markets, many see a silver lining.

Every day, thousands of truckers and farmers converge on Shouguang's sprawling complex of open-air warehouses, bringing their produce from near and far or setting off with groaning loads to Beijing and other destinations further north.

Amid widespread food price inflation nationwide, heightened demand in the run-up to the Lunar New Year and supply shortages caused by snowstorms across much of China, those with vegetables to sell are enjoying their new-found bargaining power.

Zhang Huitao says that the cauliflower she deals in is now going for about 2.5 yuan ($0.35) per "jin," or 500 g (1.1 lb), more than three times what it fetched less than two months ago.

"Now that it's more expensive, there's more room for me to make money," said Zhang, bundled up in a bright blue winter coat. She estimated that her margins have gone up by five or six times.

The farmers, traders and drivers at Shouguang can count themselves doubly lucky.

The town, in Shandong province, about 400 km (250 miles) southeast of Beijing, has been spared the weather chaos further south that has destroyed crops and cut off roads, power and rail links.

Yet because many trucks have not been able to deliver their produce to market, overall supplies have shrunk, boosting prices.

FATTER WALLETS

"If I had to estimate, I'd say that for every 200 trucks arriving before, there are just 150 now," said Guo Mingqian, a manager at the wholesale market.

"That has driven up prices, which has helped fatten farmers' wallets. That's a good thing for them."

Among those doing well is Wang Wankai, who owns one of the hundreds of thousands of greenhouses that dot the countryside around Shouguang.

He can make more than 50,000 yuan ($7,000) a year from the cucumbers and bitter melons he grows -- but only because he invested some 200,000 yuan in a state-of-the-art greenhouse.

"I'm able to grow my cucumbers and bring them to market when it's too cold for others," Wang said, wiping the sweat off his brow in the warm, humid air inside.

"If vegetable prices weren't going up in general, I wouldn't be able to afford a greenhouse like this."

Wang's circumstances bring into focus the balancing act facing policy makers in Beijing: they want to see farmers make a better living, but they also hope to prevent excessive price rises that could upset consumers.

While vegetables nationwide cost nearly 29 percent more in November than a year earlier, meat and poultry went up almost 39 percent, a gap Wang himself was quick to point out.

Those items together have been responsible for much of the surge in overall consumer inflation to the fastest pace in over a decade. The rate in December was 6.5 percent and economists expect the bad weather could soon push it above 7 percent.

LETTING GO

"A reasonable level means that after paying for their costs, farmers can still make a profit. We have to ensure that farmers still have an incentive to grow crops," he said on Thursday.

To that end, Beijing would be well advised to let markets like Shouguang do their job of discovering prices and sending signals on what goods are most needed, said Hong Liang, China economist with Goldman Sachs in Hong Kong.

Concerned that inflation could turn grumbling into unrest, particularly heading into the Lunar New Year, Beijing last month controversially intervened to prevent leaps in the prices of basic necessities.

"The temporary controls on food prices are ... detrimental to future supply responses from farmers, as well as running against the government's stated goal of promoting farmers' income," Liang said in a research report.

If the mood among farmers in Shandong is anything to go by, one essential price signal currently being sent is that it does not pay to grow grain, which nationwide cost only 6.6 percent more in November than a year earlier.

Many farmers across Shandong complained that prices for wheat and corn -- the very items that poor city dwellers fear will get more expensive -- were not rising as fast as their inputs such as fertilizer, let alone the food they themselves have to buy.

"Planting grain isn't worth it," Wang said. "Here in Shouguang, pretty much everybody has greenhouses now. There are very few left who grow grain."